Canopy Stock May See a Big Move Wednesday. But The Pot Company’s Explosive Share Count May Matter More

Article by David Milstead, The Globe and Mail

Canopy stock may see a big move Wednesday. But the pot company’s explosive share count may matter more DAVID MILSTEAD SPECIAL TO THE GLOBE AND MAIL. A worker pushes a cart of marijuana plants at the Canopy Growth Corp. facility in Smiths Falls, Ont. on Jan. 4, 2018. CHRIS WATTIE

Cannabis leader Canopy Growth Corp. is still at the early stage when profits are elusive, despite an exploding share price that has made the company worth more than $8-billion.
So while there’s a chance that the typical Street game of beat-or-meet earnings expectations will play out Wednesday morning when the company releases fourth-quarter and full-year earnings, investors will be well-advised to focus on Canopy’s exploding share count as well.
The issuance of new shares can bring much-needed capital to a company, or help compensate employees without using precious cash. But each new share gives existing stockholders a little bit less of the pie, and, all things equal, reduces earnings per share. The hope is that the benefits of the new shares outweigh this “dilutive” effect.
On Tuesday, Canopy filed a proxy circular for a special shareholders’ meeting July 30. (The company’s regular annual meeting is slated for September.) The good news is that the company seeks authorization to pursue a stock split – perhaps 2-for-1 or 3-for-1 – sometime in the future. Perhaps less exciting is that the company also wants to expand the number of shares available for its employee compensation plans.
Canopy, which has 201 million shares outstanding, has already promised another 17.2 million shares to employees for its stock plans, leaving just 2.7 million shares to go under its current, shareholder-approved program. The company is asking to amend the plan to reserve another 13.1 million shares, with a goal of keeping the total stock plan below 15 per cent of the company’s shares. (A 2017 study by compensation consultant FW Cook of 300 U.S. companies found the median “overhang,” the potential dilution from outstanding equity awards, of 3.4 per cent.)

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